Legislature(2015 - 2016)BARNES 124
03/09/2015 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR8 | |
| HB105 | |
| HB14 | |
| HB92 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 105 | TELECONFERENCED | |
| *+ | HB 14 | TELECONFERENCED | |
| *+ | HB 92 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HJR 8 | TELECONFERENCED | |
HB 105-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT
1:21:15 PM
CO-CHAIR NAGEAK announced that the second order of business is
HOUSE BILL NO. 105, "An Act relating to the programs and bonds
of the Alaska Industrial Development and Export Authority;
related to the financing authorization through the Alaska
Industrial Development and Export Authority of a liquefied
natural gas production plant and natural gas energy projects and
distribution systems in the state; amending and repealing bond
authorizations granted to the Alaska Industrial Development and
Export Authority; and providing for an effective date." [Before
the committee was CSHB 105(ENE).]
1:21:54 PM
FRED PARADY, Acting Commissioner, Department of Commerce,
Community & Economic Development (DCCED), began the introduction
of HB 105 by noting that Administrative Order 272 from Governor
Walker directs the commissioner of the Department of Commerce,
Community & Economic Development to work to collaborate at the
highest levels of his administration to advance the Interior
Energy Project (IEP) to reduce the cost of energy into the
Fairbanks area. He said HB 105 supports that purpose in simply
giving more options in how to source gas to support that
project, as well as updating bond limitations and deleting
outdated bond projects.
1:22:39 PM
GENE THERRIAULT, Energy Policy and Outreach Director, Alaska
Energy Authority (AEA), Alaska Industrial Development and Export
Authority (AIDEA), Department of Commerce, Community & Economic
Development (DCCED), continued the introduction of HB 105 by
explaining the provisions of CSHB 105(ENE), the bill version
before the committee. He said Section 1 provides an update to
an existing limitation on AIDEA's ability to bond for funds. If
AIDEA is going to participate in bonding a project that is over
$6 million, AIDEA must receive a resolution of approval from the
local government on the siting of the proposed project. That
existing cap of $6 million has been in place since 1990 and the
proposal is to adjust that amount to reflect the erosion of the
purchasing power due to inflation over that time period.
1:24:18 PM
MR. THERRIAULT explained Section 2 is an additional adjustment
in AIDEA's ability to bond. The existing bond limitation of $10
million, page 2, line 16, was established in 1990. He said
[raising it to $25 million] will cover the erosion of inflation
and make an adjustment due to the cost of the type of project
that AIDEA is asked to participate in. Section 3 makes two
adjustments in AIDEA's ability to participate with local lenders
in commercial loans. The first adjustment, page 2, line 28,
caps the participation at $25 million, the current cap being $20
million, which was established in 2005. The second adjustment,
page 2, line 30, raises the cap from $20 million to $25 million
[for qualified energy development]. This cap was established by
the sustainable energy transmission and supply development
(SETS) statute that was passed a number of years ago. It is
desired by AIDEA to have the dollar amounts for those two caps
be equal. He noted that all of page 3 is existing statutory
language. Turning to page 4 of the bill he noted that Section 4
is a new section inserted by the House Special Committee on
Energy and that in the original bill this provision was in the
repealer section. The original bill repealed a number of old
unused AIDEA bond authorizations, many of which have been on the
books since the 1990s. The AIDEA board of directors generally
won't utilize authorizations that become a certain age because
the board feels it has to go back to policymakers to get the
language refreshed or to get new authorization. This could be
because the anticipated project for which the bond authorization
was given did not go forward, the project may not have
materialized, or the project may not have survived the AIDEA due
diligence process. Bond counsel has advised AIDEA to
periodically clean its books of those old authorizations because
when bond counsel goes out to do a new rating for AIDEA those
authorizations can still weigh down the institution's books even
though they likely would not be utilized by the board of
directors. One of the repeals in the original bill was for an
old authorization that allowed for a bulk commodities inland
facility to be built somewhere in Cook Inlet. That project
never went forward, but legislators from the Matanuska-Susitna
Valley who sit on the House Special Committee on Energy plucked
that one project from the repealer section, refreshed it, and
made a slight modification to it, but tied the potential project
that would come forward from this refreshed authorization to
facilities that would be built at Point MacKenzie.
1:27:52 PM
MR. THERRIAULT said Section 5 relates to the Interior Energy
Project (IEP), authorized in 2013 under Senate Bill 23. The
concept under Senate Bill 23 was to help finance a source of
natural gas off the North Slope, primarily by helping with the
financing of a liquefied natural gas (LNG) plant that would be
able to produce the product. The estimated cost of that plant
came in higher than expected, however, and now with further
development of natural gas resources in the Cook Inlet area the
AIDEA board of directors, with the support of the governor,
would like to look at possibly sourcing the natural gas from
Cook Inlet. To have the flexibility to do that, the modified
language proposed [in the original bill] removed the language
specifying that the LNG plant had to be on the North Slope.
However, Interior members of the House Special Committee on
Energy were concerned that the focus on Interior Alaska would be
lost and so the original bill was modified to ensure that that
focus on Interior Alaska was not lost. That doesn't mean the
resource produced can't be available for other areas. The
thought behind the Interior Energy Project is that while the
core demand of the Fairbanks North Star Borough helps to anchor
the project, the commodity can be used up and down the highway
system, have possible delivery through the freshwater river
system and maybe even coastal Alaska, to help with the overall
economics of a project because, as with most energy projects,
the higher the volume the lower the per unit price.
MR. THERRIAULT noted Section 6 is one of the repealers but is
not a complete repealer. The language in question was last
modified by the legislature in 1992 and was a bond authorization
for the FedEx facilities at the Anchorage airport. Part of that
bond authorization was utilized for the construction of that
facility and the authorization dollar amount that was utilized
has been repaid. So, to clean up the AIDEA books the proposal
is to move the excess bond authorization. Section 7 is the
complete repeal of the remaining old authorizations because
those projects never advanced. Section 8 is an immediate
effective date on the contents of the bill.
1:31:09 PM
REPRESENTATIVE HERRON observed that title lines 3-4 on page 1
talk about production plant, natural gas energy projects, and
distribution systems. He further observed that Section 4, page
4, lines 21-22, talk about being located at Point MacKenzie and
asked whether that should be reflected in the title.
MR. THERRIAULT replied he thinks it is included in the title
because it deals with amending and repealing bond authorizations
and that one amends an existing bond authorization.
1:32:01 PM
REPRESENTATIVE HAWKER commented he has quite a few questions and
concerns about this bill. Regarding Section 4, he recalled Mr.
Therriault's statement that this pre-existing bond authority was
refreshed with a slight modification. He requested an
explanation of what that "slight" modification did.
MR. THERRIAULT responded that the language was included by the
House Special Committee on Energy, and AIDEA didn't see the
language until it actually came out in the committee substitute
(CS). The modification removed the language, "related loading
and conveyor", as well as removed the language that specified
that such a facility could be built anywhere in Cook Inlet.
Language was added so that if it were to move forward the
facility or port would be located at Point MacKenzie.
REPRESENTATIVE HAWKER noted this is the authority for AIDEA to
issue bonds and said he finds it interesting that AIDEA didn't
know this amendment was coming in the House Special Committee on
Energy.
MR. THERRIAULT answered that the chairman of the committee had
indicated he was considering that and in a conversation with the
chairman's aide it was stated that it may wait until the bill
was taken up by the House Finance Committee. However, the
language was included in the CS.
1:34:03 PM
REPRESENTATIVE HAWKER observed that, as modified, the language
in CSHB 105(ENE) states that AIDEA may issue bonds to "finance
the acquisition, design, and construction of a port facility and
equipment related to the development and operation of a bulk
commodity loading and shipping terminal". He asked what was
envisioned by the original debt authority, what was the project
going to be, and what does AIDEA envision the project to be
today with the "slight" modification that was made to those
words.
MR. THERRIAULT replied his understanding is that initially it
was the possibility of loading mineral elements and that is why
the word "conveyor" was included. He deferred to Mr. Ted
Leonard to further address what the original concept was.
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
& Economic Development (DCCED), responded the original project
was to be a mineral bulk order or the same type of thing that
could be used for other bulk commodities. He offered his belief
that the House Special Committee on Energy is now looking at
this as also being able to be used as an LNG export facility and
that is why the committee took out the wording. He said the
chair of the House Special Committee on Energy could provide
more information on the intent.
REPRESENTATIVE HAWKER inquired whether he is correct in
understanding that Mr. Leonard, a representative of AIDEA, is
saying he is uncertain as to the intent in Section 4 and that
Mr. Leonard is not certain what type of facility is contemplated
for which the legislature would be authorizing state borrowing
of $50 million should this bill pass.
MR. LEONARD confirmed Representative Hawker is correct, AIDEA
has not received a complete description of this.
REPRESENTATIVE HAWKER said this is a very important point.
1:37:22 PM
REPRESENTATIVE JOSEPHSON said he knows there is discussion and
interest in a separate export project from the west coast of the
Cook Inlet. However, he continued, his focus on this is the
Interior energy problem and therefore he will need additional
follow-up. He offered his understanding that the proposed line
for the Alaska LNG Project would come to or go through Point
MacKenzie and commented that that would be relevant in terms of
infrastructure.
CO-CHAIR NAGEAK asked whether anyone on the committee or in the
audience can respond to Representative Josephson. No one
responded.
1:38:15 PM
REPRESENTATIVE HERRON said he would feel more comfortable if the
title of the bill reflected what the intent is. He said he
still has the same concern as he has on Section 4.
MR. THERRIAULT replied that the title in CSHB 105(ENE) came back
from the drafters without that change, which reflects that the
drafters considered the title to be adequate as written. He
said it is in the committee's jurisdiction to consider changing
the title.
1:39:10 PM
REPRESENTATIVE SEATON expressed his concern that there have been
a number of ideas for providing energy to the Interior and some
have turned out to be non-economic because of the liquefaction.
Yet, he noted, this bill is targeting strictly energy by
liquefaction; a small diameter pipeline from Cook Inlet to the
Fairbanks area would provide pipeline gas without the loss
through liquefaction and transportation, and those costs aren't
included in this. He asked whether that authority is somewhere
else within AIDEA or whether there is no authority in AIDEA to
do a Cook Inlet pipeline with gas of quality for burners without
the expense of a gas treatment plant, giving lower price energy
to Fairbanks.
MR. THERRIAULT responded that Mr. Bob Shefchik, Project Manager
for the Interior Energy Project and consultant to AIDEA, did
commit to Senator Micciche that he would refresh the members on
a possible pipeline that would be able to serve Interior needs.
He said Mr. Shefchik also committed to work with ENSTAR Natural
Gas Company because of ENSTAR's expertise in pipeline. He
further noted that Mr. Shefchik will be in Juneau on [March 10-
11] and would therefore be available to answer questions and
meet with Representative Seaton. Mr. Therriault offered his
understanding that the cost of a pipeline is coming in a little
higher than what the available financing is and said Mr.
Shefchik could provide those numbers to Representative Seaton.
1:41:21 PM
REPRESENTATIVE SEATON understood, then, that CSHB 105(ENE) does
not include any financing authority for getting gas to the
Interior through a pipeline from Cook Inlet. Rather, the bill
is solely that if Cook Inlet gas is wanted, then 15 percent of
the gas would have to be expended to liquefy it and then
transport it as LNG; that would be the only way that AIDEA would
be able to finance Interior energy under this bill.
MR. THERRIAULT answered it is still tied to LNG as a source when
looking at Section 5 of CSHB 105(ENE). In the last sentence of
Section 5, distribution "system" is changed to "systems" because
the Regulatory Commission of Alaska (RCA) granted the Interior
Gas Utility (IGU) the service territory outside the core of
Fairbanks, so there are currently two distribution systems in
Fairbanks. Whether the language "and affiliated infrastructure"
is broad enough to consider pipeline that feeds that
distribution system is a question that could be put to
Legislative Legal and Research Services. So, as was the case in
2013, the focus is on an LNG mechanism for the delivery.
MR. LEONARD added that currently under the SETS financing bill,
AIDEA cannot finance a pipeline from Cook Inlet to Fairbanks;
that is specifically not included under what a qualified energy
project is for AIDEA to finance under the SETS fund.
1:43:27 PM
REPRESENTATIVE SEATON inquired about what fund and the source.
MR. LEONARD replied it is defined under AS 44.88.900, Section
14, which states that "qualified energy development" means a
project in the state that involves liquefaction, regasification,
distribution, storage, or use of natural gas except a natural
gas pipeline project for transporting natural gas from the North
Slope or Cook Inlet to market.
REPRESENTATIVE SEATON asked whether the interpretation is that a
pipeline from the North Slope or from Cook Inlet to market means
any sales.
MR. LEONARD responded yes, there would have to be a change to
this section to utilize SETS funding for that type of project.
1:45:30 PM
REPRESENTATIVE HAWKER asked whether anything in Section 4 makes
it clear as to whether the bulk commodity loading and shipping
terminal refers to loading and shipping things overland to
someplace within the state versus loading and shipping something
away from the state as in exporting it via water.
MR. THERRIAULT answered he doesn't believe so.
REPRESENTATIVE HAWKER presumed the language in Section 4 that
the "facility will be owned by the authority" means the port
facility. He inquired whether there is any assurance that this
ownership through the proposed spending authority of $50 million
will not be in competition with any kind of a port facility that
is owned, operated, or invested in by the private sector.
ACTING COMMISSIONER PARADY replied he doesn't believe so. He
noted that the original bill simply repealed this section with
the other repealers and said the modification has created the
questions that Representative Hawker is astutely asking.
1:47:30 PM
REPRESENTATIVE HAWKER argued that Section 5 is a significant
restatement of the uncodified law that was passed in 2013
following a lengthy public process where the legislature made
the policy decision to authorize an investment of $275 million
in moving gas from the North Slope and making it available to
consumers in Fairbanks. Back then it was called gas trucking,
but now it is being called the Interior Energy Plan. Of great
concern at that time was the extremely high cost of consumer
energy in Fairbanks and other Interior communities. Under CSHB
105(ENE) the scope of this policy call is being changed to move
that appropriated money to any project desired that would bring
natural gas into Interior Alaska. He asked whether an
explanation can be provided as to what happened to the project
that the legislature approved by its policy decision in 2013 and
why AIDEA is now asking to be able to take the money that is
left and spend it anywhere that AIDEA chooses to.
MR. LEONARD responded that AIDEA moved forward with that project
and the costs came in at approximately $13-$14 per thousand
cubic feet (MCF), but that didn't meet the community target
goals. A review of the community found support for AIDEA to
look at other alternatives to see if the community goal could be
reached, which is approximately $15/MCF at the burner tip.
Based on where AIDEA was at on the trucking project with all the
different segments, it was looking like gas to the burner tip
was going to be over $19/MCF.
1:51:22 PM
REPRESENTATIVE HAWKER clarified that there are two numbers for
project anticipated costs of delivering gas: the estimated cost
of getting gas to the city gate versus the estimated cost of gas
to the burner tip. He requested the difference be explained.
MR. LEONARD explained that cost of gas at city gate means gas
into a plant in Fairbanks prior to regasification and putting it
into the system. The cost of gas to burner tip in a home
includes [the cost to city gate] plus cost of regasification and
distribution. The base estimate for cost to city gate was $13-
$14 [per MCF] and AIDEA has not come to a final cost in that.
However, based on those costs plus a distribution cost of $5-$6,
the estimated cost at burner tip would be approximately $19-$20.
REPRESENTATIVE HAWKER understood that the original gas trucking
project, as envisioned and authorized by the legislature in
2013, was determined unacceptable to the community due to the
estimated cost of gas to the city gate at $13-$14/MCF. He
further understood that according to testimony at a previous
Legislative Budget and Audit Committee meeting the community
goal was in the range of $11.
MR. LEONARD answered the target goal mentioned by the community
is $15/MCF, but it doesn't actually state how much of that is
for gas through the different segments. However, he continued,
it is believed that to get anywhere near the range of $15/MCF,
gas to city gate would have to be in the range of $10-$11.
REPRESENTATIVE HAWKER understood that Mr. Leonard's reference to
$15/MCF was for the cost to burner tip, and the reference to
approximately $11/MCF was for the cost to city gate.
MR. LEONARD confirmed that to be correct.
1:55:16 PM
REPRESENTATIVE HAWKER stated that the over-reaching objective
here is to get cost relief into Interior Alaska, specifically
the community of Fairbanks. He recalled an earlier announcement
that AIDEA intends to purchase Fairbanks Natural Gas (FNG). He
noted that that purchase agreement includes a contract with a
subsidiary of Hilcorp Energy Company (Hilcorp) to move LNG from
the Cook Inlet to Fairbanks and that this contract has a 10-year
committed delivery for all gas required by the current customer
base of FNG at $15 to the city gate. Yet, the desire is to
start over and reconsider the North Slope gas trucking because
it came in at $13-$14 [to city gate] while AIDEA invests another
$50 million of public funds in buying FNG with an inescapable
10-year contract at $15 [to city gate] while the community's
acceptable number is $11 [to city gate]. He requested an
explanation of this paradox and how that integrates with the
desire now to continue to look for some other project that is
unspecified and for which the legislature would be writing a
blank check.
MR. LEONARD replied AIDEA does understand that paradox. He
noted that the RCA is looking at that contract and pointed out
that the contract will be there regardless of whether AIDEA
purchases the company. He said AIDEA is specifically looking at
this purchase to see how it can lower the cost of the total
system, which is mainly the distribution system. The belief is
that AIDEA can immediately cut that by 8-15 percent, which
lowers that total cost to the burner tip. Also, AIDEA realizes
it will have to live up to that contract as part of the
purchase, but AIDEA believes it can lower the total cost of gas
through the blending of costs to all of Fairbanks, and that is
approximately 20 percent of the total demand that AIDEA believes
is needed by Fairbanks. He said AIDEA is still looking at what
is the best source of gas to Fairbanks with the lowest cost and
believes it needs to look at the alternatives such as Cook Inlet
before moving forward. It is not to say that it couldn't still
be from the North Slope, but AIDEA has been asked to look at
whether there is an alternative that could provide lower cost
gas and that is the process that AIDEA is asking to be able to
move forward with.
2:00:25 PM
REPRESENTATIVE HAWKER understood AIDEA is asking for the
authority to finance up to $275 million of development,
construction, installation, start-up costs, operation, and
maintenance for an LNG plant and system. Previously the
legislature made the policy call that it supported a system that
was very clearly North Slope gas into Fairbanks. He inquired as
to what is AIDEA's current project plan that is going to result
in potentially all of these savings.
MR. LEONARD responded AIDEA does not yet have the complete plan.
He said AIDEA is going to set up a system to look at the
different alternatives and, if there is a better project coming
from the south, AIDEA is asking the legislature to allow AIDEA
to move forward with investing in that project instead of just
the North Slope. He cannot yet tell the committee which project
AIDEA would invest in, but AIDEA believes it needs the ability
to look at investing in a facility that is not on the North
Slope if it could provide lower cost gas to Fairbanks.
ACTING COMMISSIONER PARADY pointed out that the authority for
the investment of up to $275 million is in the original
legislation. What's at question in this bill is simply the
source of the gas - whether it is the North Slope or Cook Inlet.
It is incumbent upon AIDEA that the end price into the Fairbanks
community support the purposes of the project, which is to lower
the cost of energy to those consumers but also to do so at a
price that yields a conversion rate that ultimately is
successful. That is why the tie to the burner tip number of $15
and that is why the drive to consider alternatives. But those
alternatives are currently limited to the North Slope, and now
AIDEA is asking for the authority to consider Cook Inlet, which
does not foreclose the North Slope.
2:02:57 PM
REPRESENTATIVE SEATON noted that distribution systems have
consistently been the total responsibility of the local
authority. He said he is concerned with the Hilcorp contract
being for $15/MCF and the statement that there will be savings
on the distribution system. He inquired whether that means
AIDEA is planning on absorbing a subsidy by the state of the
distribution system. With a cost to city gate of $15, the state
would have to build out the distribution system for free to have
a burner tip cost of $15.
MR. THERRIAULT answered that the original bill set in motion the
process of looking at the cost of building out the distribution
system and using the financing tools available to that. The
SETS funding has an ability to delay principle payments and
adjust the interest payments. Specific tools were granted in
that original financing package to try to lower that resulting
cost. There was also a capital component in the blend of
financing tools, which still is available for the board to
figure out where the consumer gets the most advantage from the
placement of the total tools that were granted in that 2013
legislation. Additionally, the IGU project is a governmental
entity, so there is not the profit return/equity component that
a private sector distribution system has, which helps to lower
the cost. That is one of the advantages of the Letter of Intent
that was signed for AIDEA to purchase the Pentex Alaska Natural
Gas Company, LLC (Pentex) parent company's assets, one of them
being the existing FNG distribution system. Although the
Fairbanks/North Pole area is the second largest metropolitan
area, the overall demand is relatively small for the cost of the
infrastructure to serve it. Ensuring that those two systems
have the lowest required return on equity, integrating the two
systems for the sharing of transmission lines, storage, and
regasification, and linking them at multiple points so gas can
flow back and forth across the boundaries of the service
territory helps to lower that cost and ultimately set up the
possibility for combining the two systems into one.
2:06:27 PM
REPRESENTATIVE SEATON pointed out that distribution systems are
based on assessments of lots and those are not subject to return
on equity because the equity comes from the people who are being
serviced, not from the service company - it is a zero return on
equity under the current system. For example, if a private
entity like ENSTAR builds out a system in a town and $3,200 is
assessed per lot which is then given to ENSTAR, there is no
return on equity because ENSTAR had no equity input into that.
He said he is therefore unsure whether he is hearing that state
equity is going to be substituted for lot ownership equity in
this system and it will be called a gift from the state for a
distribution system. If that is done as the basis for this
plan, he opined, it would be totally adverse to what has
happened all across the state and would be a tremendous inequity
of gas distribution, and he is concerned about that. He
requested that AIDEA provide a definite outline of how the money
flows for a distribution system and whether it is a loan and
what the interest rate is. Governments are doing that now and
mostly there is no return on equity because the lot holders are
assessed and the assessments pay that off over a 10-year period.
He said this is a question the committee needs to have answered.
MR. THERRIAULT replied that in Representative Seaton's area the
municipality assessed the lot owners and the state provided a
grant of $10 million for the transmission system to get the gas
to the community, thereby helping to lower [the assessment].
When the Interior Energy Project (IEP) was discussed in 2013, it
was looking at the difference of sourcing gas off of the ENSTAR
system in Cook Inlet. The cost of the gas going into those
pipes is much lower than the cost of the gas going into any
distribution in Fairbanks because of the geographic distance
from the source, which is why some extra tools were given to the
IEP. They give the AIDEA board some latitude on where to apply
those different financing tools to help the final delivered
price to the consumer. The community's target price of $15 is
roughly twice the delivered price in much of the Cook Inlet.
There are areas that have this property tax assessment and there
were local improvement districts (LIDs) on the ENSTAR system in
the Matanuska-Susitna area to help push the pipes out to areas
where the customer density was lower. The price of the
commodity that goes into the intake of that pipe is already so
much lower than anything that will be able to be achieved in the
Interior, he reiterated.
2:10:25 PM
REPRESENTATIVE HAWKER recalled the earlier testimony that it was
deemed necessary for AIDEA to be able to look at sourcing gas,
including from the Cook Inlet. He also recalled comments that
the savings that would immediately be effectuated were basically
because if the state goes into competition with someone the
state doesn't have to make a return on its investment or provide
for replacement costs like a business does. He said he is aware
of at least three private sector entities that are currently
investigating business plans for delivering gas from the Cook
Inlet to Fairbanks and he knows that they have talked to AIDEA
about this. He asked why the committee would want to approve
allowing AIDEA to use the state's taxing authority to go into
competition with those private sector entities.
ACTING COMMISSIONER PARADY responded that it is trying to
achieve a price that results in conversion and, to date, there
is no evidence that the private sector is able to deliver at
that dollar. He allowed he doesn't have complete evidence that
AIDEA can either, but fundamentally it is a matter of trying to
solve the pricing issue and the conversion in the Fairbanks
Interior Energy Project.
REPRESENTATIVE HAWKER requested an explanation of the term
"conversion factor."
ACTING COMMISSIONER PARADY answered it is getting homeowners to
convert to natural gas as a source of fuel for home heating.
The term conversion "rate" is better than conversion "factor."
The rate of conversion - enough critical mass - must be achieved
to have a market.
2:12:42 PM
REPRESENTATIVE HAWKER said he doesn't want anyone to think him
unsympathetic to Fairbanks, but he is all about trying to do it
right. He said he is hearing a price-driven demand: that
things will not go forward until the number being insisted upon
by the community is reached. If the very competent private
sector folks in a very competitive environment can't get it, the
only way the state is going to get it is by essentially making
Fairbanks a ward of the state and putting it on a subsidy
forever, and he doesn't think anyone wants that to happen.
Section 5 asks the legislature to write a blank check to do
whatever AIDEA decides to do without ever coming back to the
legislature for sanctioning or authority. He inquired why AIDEA
doesn't come up with a plan, numbers, contractors, and specifics
such as source of gas and commitments to make the gas available
that show AIDEA can accomplish this at the rate being requested
by the community, and then ask the legislature to pay for it.
ACTING COMMISSIONER PARADY replied that the description just
offered by Representative Hawker is the work that is underway by
the Interior Energy Project team, which is to try to find a gas
supply that works, utilize the tools that are available to AIDEA
in terms of liquefaction, transportation, storage, distribution,
and apply the state's leverage to those activities in a way that
results in a price that will yield the conversion rate that
works. He said AIDEA is not asking for a blank check, rather
AIDEA is asking for the authority to take the tools previously
offered to it by the legislature and consider an alternative
source to supply that market. He said AIDEA is open, as it
should be, to any guidance that the legislature cares to provide
in that direction.
2:15:13 PM
REPRESENTATIVE JOHNSON offered his belief that when legislators
approved that original $275 million there was a trucking plan
and a source of gas. There was a project in front of the
legislature and that is what he is asking for before making a
re-appropriation. Without a plan it is a blank check. He asked
whether there is any part of the $275 million that AIDEA needs
to continue the process on the road AIDEA is going down.
ACTING COMMISSIONER PARADY recognized that this discussion will
be continued and said the need is for the ability to consider an
alternative source of gas because AIDEA was unable to get to a
price that worked. The full project detail that the committee
is looking for is under development.
REPRESENTATIVE JOHNSON said his question is whether AIDEA can do
that study now without any additional money in this bill.
MR. THERRIAULT responded he thinks there are some limitations in
using any of the funds previously provided from the legislature
to get into any real details of a source other than the North
Slope and whether AIDEA needs an authorization to do that.
REPRESENTATIVE JOHNSON stated he would like to hear that because
he thinks the number the committee needs to be looking at is the
number that would advance whatever AIDEA needs, not the full
$275 million. He requested that the committee hear from Mr.
Leonard in this regard.
2:17:16 PM
REPRESENTATIVE HAWKER requested an explanation of the $750,000
that was approved by the AIDEA board to do exactly what
Representative Johnson is asking.
MR. THERRIAULT answered that a lot of that effort was also
looking at changes to the distribution system which is covered
under the existing language. Savings were looked at and what
the price would be if the price could be lowered for the supply
for that distribution system. He said AIDEA has held focus
groups and surveyed residents as to their existing price, what
AIDEA believed the target price would bring their costs down to,
and what would be the rate of people that would make the
expenditure to convert their home to natural gas. He said AIDEA
is not counting on 100 percent conversion, but rather has built
its numbers around 75 percent, and AIDEA is hoping a price can
be achieved that would get a higher conversion than that. There
must be a certain volume in order to get the price.
2:18:45 PM
REPRESENTATIVE HAWKER said when he asked what was going on with
the money that had been appropriated, he thinks he was told that
it was really for something else and not quite what he took to
be Representative Johnson's concern, which is to bring the
legislature a project and present what works. He said AIDEA
Resolution G15-02 authorizes $500,000 from the SETS fund and
$200,000 from AIDEA's economic development account and that the
resolution states it is for a process-driven evaluation of
alternative means of supplying energy to Interior Alaska that
meets the needs of the community. He concluded that AIDEA is
spending $700,000 to come up with this answer that the
legislature would like to see before it makes a policy decision
as to whether to invest hundreds of millions of state dollars in
the project.
MR. LEONARD replied the difference is that under Resolution G15-
02 original SETS monies are being used that were still available
to AIDEA to look at qualified energy projects. He said AIDEA
cannot invest funds under the new SETS, Senate Bill 23, of the
$125 million and $150 million of bonds towards the projects.
So, in essence, AIDEA has original SETS funds to look at the
project; however, it will take approximately three months to go
through the process and AIDEA would then have to wait to come
back to the legislature next year to get approval to invest in a
project that doesn't deal with North Slope gas. Putting a
legislative session into the mix before AIDEA is able start the
process of investing in a project would increase the time before
new gas would be going into Fairbanks.
REPRESENTATIVE HAWKER clarified his aforementioned cite was from
the memorandum to the AIDEA board members supporting Resolution
G15-02. He said he is uncomfortable with writing a blank check
for [$275] million when he does not know more of the project
details.
2:22:25 PM
REPRESENTATIVE SEATON requested that before the bill is next
brought up the co-chair solicit from AIDEA a legal opinion as to
whether the interpretation of "affiliated infrastructure" on
page 5 of the bill, lines 2-3, would expand to financing a small
diameter gasline from Cook Inlet to Fairbanks.
REPRESENTATIVE HERRON requested that the title be looked at by
the committee to ensure it is tight.
2:24:05 PM
REPRESENTATIVE JOSEPHSON understood that for the $275 million
AIDEA has not exercised at this point the authority given to it
by the legislature to obtain those funds and develop this
project.
MR. THERRIAULT replied a portion of the capital component that
was also included in 2013 has been used and there have been some
loans from distribution work to FNG and IGU.
REPRESENTATIVE JOSEPHSON understood the money AIDEA is talking
about is the grant of about $50 million that was part of the
2013 legislation.
MR. THERRIAULT responded that the grant was $57.5 million.
REPRESENTATIVE JOSEPHSON understood the reason for this bill is
because the North Slope plan was uneconomical and AIDEA wants to
make an adjustment to something that might be more economical.
MR. THERRIAULT answered correct.
REPRESENTATIVE JOSEPHSON further understood the bill is
repealing a number of other authorizations as a cleanup to make
AIDEA's bonding portfolio look more attractive.
MR. THERRIAULT replied correct.
2:25:26 PM
CO-CHAIR NAGEAK opened public testimony.
2:25:56 PM
LISA HERBERT, Executive Director, Greater Fairbanks Chamber of
Commerce, testified in support of HB 105. She said the chamber
believes Interior Alaska remains the place to do business, but
the chamber's mission is made more difficult every year that
goes by without action towards achieving low cost energy. She
informed the committee that just moments ago the chamber's board
of directors wrapped up a meeting with AIDEA representatives
Dana Pruhs and Bob Shefchik and voted unanimously to support HB
105 and SB 50. The chamber's understanding is that this
legislation provides the necessary flexibility to AIDEA to
advance a natural gas energy project to address the high cost of
energy in Interior and rural Alaska. It is another tool in
AIDEA's toolbox to meet the stated goal of bringing affordable
natural gas to the greatest number of Interior residents and
businesses as quickly as possible. Reducing the high cost of
energy remains the chamber's number one critical priority for
chamber members as well as economic development organizations
and local governments in the Interior. The chamber remains
committed to engaging with the legislature, AIDEA, and all the
community stakeholders as affordable energy for the Interior is
pursued.
2:27:43 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough, said he sat
in meetings a couple of years ago with former Governor Parnell
and there was the idea that this plan up north would be the one
that would solve the energy needs of Interior Alaska,
specifically within the Fairbanks North Star Borough. [The
borough] had already set up a municipal utility to cover the
area outside of the existing service area. He said that plan
for a North Slope project wasn't anything that was firmed up at
that point. It took months and months to even get to the point
of what is the right plan to bring forward. He requested that
his community with its air quality issues and cost of energy,
and the second largest metropolitan area in the state, be able
to get some flexibility through HB [105] to be able to proceed
with looking and penciling out. The people in AIDEA will pencil
it out and then that will become the public process that the
legislature has heard when it was said what is happening up
north. He urged the committee to move the bill because a
solution is needed for his community and the bill is needed to
move forward and continue looking at other aspects.
2:30:38 PM
JOMO STEWART, Energy Project Manager, Fairbanks Economic
Development Corporation, offered his organization's support for
HB 105. He recalled that when this process was started several
years ago the community goal was to have affordable energy to as
many people as possible as quickly as possible, that being
defined for natural gas as $15 per million British thermal units
(MMBtu) to 80 percent of community structures within three to
five years. The reason for choosing $15/MMBtu was because the
cost of energy at the time was $30/MMBtu, which is equivalent to
$30 per thousand cubic feet (MCF). It was thought that to truly
have a favorable impact upon the community economy, natural gas
would need to be cheap enough to compete with wood because the
community also has an air quality problem. When that process
was started the community also had a broader goal regarding the
Interior Energy Project. When the community began to move
forward with how to design a system it was shooting for
replicable models, recognizing that out of over 200 communities
across the state, only a handful actually had affordable energy
on a consistent basis, Anchorage being one of them and being a
community that was directly tied to the Cook Inlet gas fields
through the ENSTAR system. However, he continued, for the vast
majority of other communities energy does not serve to underpin
diversified and growing economies, but instead drains, cripples,
and crushes those economies. One of those sources of
replicability was when the Interior Gas Utility (IGU) was
created, a municipal utility that could drive out those pipes to
those lower and medium density areas to ensure that as many
people as possible in the community would be able to tap in and
have the benefit of affordability. The other thing that was
done was to try to come up with a funding model that would be
more sustainable and replicable than, say, the $10 million
direct grant to get pipes to Homer, the $25 million to get a
transmission line to the Fire Island wind farm, and the tax
credits that go into Cook Inlet development. He pointed out
that in 2014 the subsidy for Cook Inlet development was $305
million, and $311 million in 2015, and $282 million in 2016, and
by 2018 the subsidy will be a total of $1.6 billion to keep gas
affordable and available to the Cook Inlet region. For the
Interior, the right thing to do seemed to be a low-grant model
with loans where the repayment structure would make more funds
available to bring the benefits of natural gas through creating
distribution systems in other communities. The belief is that
it still is the right thing to do. He urged the committee to
look favorably upon HB 105 and to move it out of committee as
rapidly as possible.
2:33:58 PM
CO-CHAIR NAGEAK closed public testimony and held over HB 105.